Patent madness: Troll sues FTC

Patent madness: Troll sues FTC

Summary: Faced with the threat of having its business model being ruled illegal, patent troll MPHJ has sued the Federal Trade Commission.

TOPICS: Patents, Legal

Patent trolls come in two forms. One uses patents as a bludgeon to protect its own turf against its corporate enemies. You see that in the worldwide lawsuits between Apple and Samsung. Another uses the threat of a patent lawsuit to extort payment from large companies since the cost of defending against a less than $1-million patent demand, averaged $650,000 in 2011. God help you if you lose. Then, there's MPHG's model. They go after the small fry: companies with less than a million dollars to their name. 


MPGH, and its 101 shell corporations, is the brain-child of Texas attorney Jay Mac Rust  (PDF Link). Instead of going after the big companies, he goes after small businesses all the way down to mom and pop businesses. MPGH sends them a letter informing, say a local coffee shop chain that their company is using its patented technology and that for a license fee of a mere $900 to $1,200, their business won't be sued.

The logic is that the amount is small enough that many small businesses will cough up the cash rather than face an expensive lawsuit. This is patent trolling as a protection racket: "Pay up and we won't burn down your business with a lawsuit."

The company's patents covers scan to e-mail technologies. What does that technology have to do with a cup of coffee? Nothing. But they might use a scanner and e-mail the document to someone so, by MPGH's greedy logic, that makes them a target.

MPGH bases its claims for five patents it bought in 2012 for one dollar. Yes, you read that right one (1) dollar. MPGH has used these patents to threaten at least 16,000 small businesses with lawsuits. So, at a $1,000 a pop, 16,000 targets, this plan could result in a $160-million return on a $1 investment. Not bad money if you can get it, eh?

But it hasn't worked out that well. We know of only 17 businesses that have paid up. Still, the potential is there. With the mere possibility of profits like that is it any wonder that 56 percent of all patent lawsuits in recent years have been by patent trolls?

Now, faced with the likelihood of the Federal Trade Commission (FTC) suing MPGH for deceptive trade practices, MPHJ attacked first. The company's grounds for the lawsuit  (PDF Link) is that the FTC is overstepping its bounds because patent licensing isn't commerce.

This lawsuit comes on the heels of the New York State Attorney General ruling that MPGH must repay any money it's been paid by New York-based businesses. Clearly, MPGH is feeling the heat and is resorting desperate measures to save its business model.

The experts aren't impressed.

Daniel Ravicher, executive director the Public Patent Foundation), sniffed, "Dumb people do more dumb things. To be expected, right?" Andrew "Andy" Updegrove, a founding partner of top-technology law firm Gesmer Updegrove, told me he "loved the part where Rust complains about being 'burdened' by the FTC coming out of nowhere asking for things. Tsk tsk."

There is some good news about this lawsuit. It's brought even more attention to just how bad our current patent laws are. There is simply no reason on earth why a business or individual should be sued simply because they use a product or service, which might violate a patent. If MPHJ has a real beef, it should be taking it up with scanner and e-mail companies, not small local businesses.

The other is that this lawsuit is shedding light on the truly lousy state of patent law — just as Congress is showing signs that it's seriously considering reforming patents. With luck, this lawsuit will not only help break MPGH, but it will hunt down patent trolls once and for all.

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Topics: Patents, Legal

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  • Way overdue

    It's about time that something is done to get rid of these trolls ... they are parasites that create no value for society. I would argue that they hurt innovation and the economy.

    1) Demand restitution of their ill-gotten gains.
    2) Fine the bastards until they go bankrupt.
    3) Disbar the lawyers that abuse the system.
    4) Tar and feather these scum bags.
    • Option Chosen

      I pick option #4. :)
      • Oh yea

        I would pick all the options starting with #4 going down the list and then #4 again! What is it they say? Never enough of a good thing.
  • Incorrect

    "at a $1,000 a pop, 16,000 targets, this plan could result in a $160-million return on a $1 investment."

    $16 million actually
  • Law

    There's law and justice. They aren't closely related and law usually wins.
    • The goal is for law and justice to be one and the same

      But that's hard to do.
      John L. Ries
    • Bigger item change the US law to UK law:

      Under British law the person who loses pays the others costs. It would stop a lot of lawsuits dead in their tracks. The US has 265 lawyers/capita and the UK has 401. Too bad most in the US Congress and Senate are lawyers. Fastest way to reduce the cost of healthcare and frivilous lawsuits.
      • The problem with "loser pays"... that the litigant with the deepest pockets has an automatic advantage. It actually makes strategic lawsuits by large corporations and other wealthy litigants easier.
        John L. Ries
    • There's a reason Justice is blind if Justice could see it would be offended

      Justice is something like Santa Claus only less substantial a fairy tale. Law only pretends it exists. Unfortunately software patents exist. Its like patenting literature rather than copyrighting. These patents exist for the purpose of suing everyone and shaking them upside down. They have no other reason to exist in my opinion. I see code like a written language. Why cant I patent sentences phrases etc. emmm maybe I can? Patent away do a search and send the violation notices out! Wahhaha the world owes me a very good living indeed! Just try saying anything!
  • I find mysef agreeing with SJVN on this topic

  • What do you expect from an unethical lawyer?

    It's a lawyer that isn't afraid to abuse the system. He also understands that once he throws this to the courts, he's got another 5 years of operating time before he wins or loses. In the meantime, he'll continue to abuse the system and take from those least able to resist.

    If he wins (a real possibility in the US court system), he'll just continue on. If he loses, he'll declare bankruptcy, thus protecting his ill gotten gains because another lawyer will be assigned to oversee the process.

    What do you want to bet that he's socking away cash in places where it'll never be found in case of bankruptcy now? One of the principals seems to be located in Israel, another in Waco Texas. Perhaps the Feds should be looking at fund transfers to Israel before all the money leaves the US.
  • Criminal behavior

    When one is clever, he or she is to be commended.
    The behavior described in this article is far from clever; it is simply criminal.
    Extortion is a criminal offense.
    I say: "Throw the book at them !"
    da philster
    • There are clever criminals

      They're a large part of the reason why our laws are so complicated. I certainly won't commend them for it.
      John L. Ries
  • One fix to patent law would cure 90 percent of this:

    Amend patent law to apply ONLY to manufacturers and/or designers (including custom-tech builders such as construction firms), but indemnify end users. After a company uses, say, a stolen patent to make and sell 1 million smartphones, the million innocent customers of that company should not be liable, only the manufacturer (of course, the customers do stand to lose support if the company goes out of business, but should not have to pay the patent owner in addition).

    According to the trolls' logic, the heirs of Philo Farnsworth should not only get all of RCA's profits for the TV sets they sold while his (ignored) patent was in force, but money from anyone who bought a TV receiver during that time also.

    Oh, one more thing: provide a "summary judgement" defense against infringement by presenting proof of prior art. A poetry professor in the 1970s got a patent on "using color of text to convey additional information" claiming he "invented" the process of using colored chalk to show rhyme schemes to his classes, and scammed some pocket change out of the computer firms that were making color displays for IT. A summary judgement defense would have only required one court session of 5 minutes, displaying an antique RED LETTER BIBLE. There's your prior art, already in the courtroom!
  • One more correction...

    (besides the obvious $16 million furfy)

    After reading the Vermont AG's case, it seems like these scum are actually demanding $900-1200 per employee!!
  • Oh, come on now!

    What is it really, MPGH or MPHJ? You use the first one three times as often as the second one, but you use the second one first, and in the Summary to boot! I know, I could look in some of the linked documents. I did. So could you. ;-)